The “Income” Tax on Wages and Salaries: Immoral and Unconstitutional

One of life’s enduring mysteries is why on earth the American people voted for the 16th Amendment and authorized the federal government to tax their wages and salaries. Given the monstrosity the IRS has become, how is it possible that the citizenry voluntarily chose to give the federal government this hideous power?

The sad truth is that they didn’t. The American people, in enacting the 16th Amendment which authorized the collecting of an “income tax,” were told they were voting to tax the rich, not themselves. The 16th Amendment was sold to voters as a soak-the-rich scheme, a way to make the rich “pay their fair share,” a way to stick it to the man. But in short order, through executive branch activism and the slavish addiction of government to greed and legalized plunder, the American people were dumped into the pit they had intended to dig for the wealthy.

Tariffs: the only source of federal revenue prior to 1913

Here is the short backstory. Prior to the passage of the 16th Amendment, virtually the only source of revenue the federal government received came through the imposition of tariffs on imported goods. Our government, quite rationally in my view, took the view that it was a privilege for foreign manufacturers to have access to American markets, and should be expected to pay for that privilege.

The comparatively small income stream from tariffs had the welcome effect of drastically limiting the size of the federal government. Amazingly, the entire budget for the federal government in 1913 was $714 million. In today’s dollars, that would be around $17.1 billion, just a tad short of the $4 trillion budgets we are running today.

But tariffs also had the unwelcome consequence of raising the cost of goods for the average American consumer. It worked roughly like this. Let’s imagine a foreign manufacturer was making a product from which he could profit by selling it in the U.S for $100. If the tariff on his product was five percent, he would need to sell the product for $105 to cover the tariff and still make money.

Now imagine there was an American manufacturer making the same widget. He too could make a profit by selling his product for $100 on the American market. The fact that his foreign competitor had to sell the same product for $105 gave the American businessman the opportunity to raise the cost of his product by, let’s say four dollars, undercut his foreign competition by a buck a widget, and still make a tidy profit. And he didn’t have to do a single solitary thing for that four bucks. The rich American industrialist could simply sit in his corner office and rake in the profits, aided by the cost-free cushion of $4 provided by the foreign competition.

So who paid that $5 tariff? In truth, foreign manufacturers didn’t pay it either – they passed it along to their customers by tacking it on to the price of their product. (This is similar to the way in which sales taxes are collected today – the retailer doesn’t pay the sales tax – you do.)The tariff in reality came out of the pockets of hard-working Americans when they bought shoes, hats, and shirts. The wealthy tycoon paid no taxes because the American worker was in essence paying it for him.

Foreign manufacturers were paying $5 a widget to the American government, money which they in turn got from consumers, and the American worker was paying $4 a widget to the rich who could raise their prices by that amount and still make bank. The federal government was raking in the dough, the American industrialist was raking in the dough, and the American worker was getting hosed.

Ordinary Americans who were working hard just to make ends meet naturally resented this state of affairs. They were understandably outraged that the entire burden of funding the federal government fell on them while the rich contributed virtually nothing, other than when they bought shoes, hats, and shirts themselves. Additionally, ordinary Americans were understandably and rightly outraged that they were making the wealthy even wealthier by the sweat of their own brows. It was a double indignity. They said it wasn’t fair, and they were right.

The complaint of ordinary Americans in the early part of the 20th century was that the rich enjoyed the same protections everyone did but weren’t paying for any of it. They stood in the same need for law enforcement to protect the peace of their communities and their freedom to engage in commerce without fear of theft, fraud, arson, and the like. They depended upon government to protect their safety just like everybody else did. But the cost of that protection was borne entirely by working class Americans. This meant the system of providing for this common self-defense was not equitable. The rich were not in fact paying their fair share.

The 16th Amendment taxes everything BUT wages and salaries

So out of this unfortunate state of affairs an amendment to the Constitution was proposed that was supposed to make the rich fat cats contribute their share by paying a tax on their “income.”

Senator Norris Brown was the author of the 16th Amendment. In a paper he published urging adoption of the amendment, he made it clear that it provided for a tax on net income from commercial ventures. He listed the kinds of taxes that would be collected: “If the income arises from an investment in lands, it should be taxed; if it arises from investments in manufacturing enterprises, in railroads, in banks, in newspapers, in the mercantile business, or in steamship lines, it should be taxed.”

As Senator Heflin said, “An income tax seeks to reach the unearned wealth of the country and to make it pay its fair share.”

Here is the point to note, and it cannot be overemphasized. “Income” had a precise meaning at the time. It meant what we today call “unearned income” or “passive income” – corporate profits, capital gains, interest income, investment income and the like. It referred to accumulated wealth and net income. “Income” referred to profit or gain resulting from business or corporate activities. The tax on “income” was most decidedly NOT a tax on labor. In other words, “income” at the time the 16th Amendment was adopted meant everything BUT wages and salaries. It did not include the wages of the working man.

The phrase “from whatever source derived” referred to the various sources of revenue that flowed to the wealthy: net income, corporate profits, interest income, dividend income, income from accumulated wealth, and capital gains. It did not refer to what a man gets in his bi-weekly paycheck.

Alabama was the first State in the Union to ratify the 16th Amendment. According to the August 3, 1909 edition of the New York Times, a Col. Bulger introduced the amendment in the Alabama House. Said the Times, “The only interruption to his speech was a query by Representative J. T. Glover of Birmingham, who wanted to know if the amendment would affect salaries. Col. Sam Will John, also of Birmingham, responded that it would not.”

Federal government slyly changes meaning of the word “income”

But it wasn’t long before the federal government slyly changed the definition of the word “income” to include wages and salaries and suddenly the poor American worker found himself caught in the web he was told would only capture the rich. It was perhaps the most diabolical bait and switch tactic in the history of civilization.

The first act of Congress after ratification of the 16th Amendment set the tax rate at just 1%, and that was only on incomes above $3,000 (the equivalent of $72,000 today), with a 6% surtax on incomes above $500,000 (about $12 million in today’s dollars). And don’t forget, this is not $72,000 in wages and salaries but only in corporate profits or dividend income. If you received the equivalent of $72,000 in wages or salary, you wouldn’t have paid a dime in taxes in 1913 because wages and salaries weren’t “income.”

Even after the “wages are income” language was inserted into the federal tax code, the first $5000 ($78,500 today) of such “income” was exempt from taxation. Since the average household income in 1909 was $436 a year, the tax still fell exclusively on the wealthy.

But the frog was in the pot and the temperature was slowly and almost imperceptibly being raised. It wasn’t until after World War II that most ordinary Americans felt the sting of the boiling water. And by that time nobody remembered the definition of “income” at the time the 16th Amendment was ratified.

As Phil Hart says in his book Constitutional Income: Do You Have Any?, “T]here is no foundation for the government’s position that ‘income’ as used in the 16th Amendment includes wages and salaries of an American working in the private sector and living in the several States of the Union.”

Hart adds there is absolutely no evidence for any “claim that the American people desired to have their wages and salaries taxed.” If they’d thought that’s what the 16th Amendment was going to do, they’d never have voted for it under any circumstances. They voted for it because they wanted to impose a tax on the rich, not on themselves.

The federal government has no authority, none whatsoever, to tax your wages or your salary, for the simply reason that wages and salaries are not “income” under the 16th Amendment. Taxes on wages and salaries lie entirely outside the scope of the 16th Amendment.

So if the federal government has no authority to tax our wages and salaries, why do we pay it? The reason I do is simple: I don’t want to go to jail.

In essence, every wage earner is now in a state of involuntary servitude. We are obligated to pay an unjust and unconstitutional tax or face the full wrath and fury of the federal leviathan.

What the American people need is a second Emancipation Proclamation to free us from this bondage. Such an Emancipation Proclamation can be issued by Congress, in the form of a law in line with the 16th Amendment that prohibits the federal government from collecting a tax on wages and salaries. Or an Emancipation Proclamation could be issued by the Supreme Court led by originalists who would issue a ruling which bound the federal government down by the chains of the Constitution and declared that it was not allowed to collect a tax on the wages and salaries of working Americans. Until that day comes, we will continue to be in the same condition as Dred Scott, slaves to an immoral, illegal, and utterly unconstitutional edict from the central government.

An Emancipation Proclamation was issued in 1863. There is no reason another cannot be issued in 2017.

(Unless otherwise noted, the opinions expressed are the author’s and do not necessarily reflect the views of the American Family Association or American Family Radio.)

Bryan Fischer is the Director of Issue Analysis for Government and Public Policy at the American Family Association, where he provides expertise on a range of public policy topics. Described by the New York Times as a "talk-radio natural," he hosts the "Focal Point" radio program on AFR Talk,which airs live on weekdays from 1-3 p.m. Central on American Family Radio's nationwide talk network of 125 stations.
A graduate of Stanford University and Dallas Theological Seminary, Bryan pastored in Idaho for 25 years, during which time he served for one session as the chaplain of the Idaho state senate. He founded the Idaho Values Alliance in 2005, and is a co-author of Idaho's marriage amendment. He has been with AFA since 2009.
In his role as a spokesman for AFA, he has been featured on media outlets such as Fox News, CBS News, NBC, CNN, the New York Times, the Wall Street Journal, the BBC, Russia Today television and the Associated Press, has been a frequent guest on talk radio to discuss cultural and religious issues. He has been profiled in publications such as the New York Times, Newsweek, the New Yorker, and BuzzFeed. He has been married to his bride, Debbie, since 1976, and they have two grown children.

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